Question
EYE SPY sells the video surveillance equipment and computer integration services together. It does not sell these separately. EYE SPY typically sells this type of
EYE SPY sells the video surveillance equipment and computer integration services together. It does not sell these separately. EYE SPY typically sells this type of video surveillance equipment and integration services with a forecasted cost of $8.136 million for $9.85 million. EYE SPY has just begun selling maintenance services and has forecasted the cost of these services at $164,000.
In the initial contract negotiations, EYE SPY told SM they would be asking for $300,000 related to the five-year maintenance contract. SM informed EYE SPY that several competitors were offering attractive pricing to obtain this maintenance work. In order get the maintenance work, the draft contract was revised to reflect that the maintenance services would be offered at a cost of $200,000.
Requirement:
3.1 Perform step four of the revenue recognition model and allocate the transaction price to each separate performance obligation. By reference to the applicable accounting literature, provide a detailed analysis to support your conclusion.
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